ETA Consulting LLC

You would first and foremost catch up on the "missed payments"; keeping in mind that the loan would typically become taxable at the end of the quarter after the quarter in which the first payment was missed. When it comes to calculating the additional interest on the "payments" that were delayed, those amounts would typically be negligible and would not constitute an unreasonable rate of return in their absence. Keep in mind that the interest accrual on the "outstanding loan balance" has already been incorporated into the original amortization schedule. Hence, when you delay on 3 payments of $150 each, your interest is only on the $450 at a rate of 1/12th of one percent on $150 for the first month, 1/12th of one percent on $300 for the second month, and 1/12th of one percent on $450 for the third month. You do this beyond 3 months, and your loan may already be taxable. When you apply the monthly interest rate to the late payment only, you'll find that the amount of interest may be less than $1, because you are not applying that rate on the entire loan balance. Good Luck!

If it is a QSLOB, fully tested to meet the QSLOB requirements each year, then it is not even treated as the same employer for compliance testing purposes. You have to ensure it meeting the strict requirements of a QSLOB (shooting from the hip, but I believe there's a 50 employee minimum). Good Luck!

I wouldn't go that far. You are actually comparing the current year HCEs (defined in the current year) to prior year NHCEs (defined in the prior year). This means that it is possible for a single individual to get tested in both groups. What does this have to do with your question? Absolutely nothing Except.... To make the point that it is an imperfect process that often does not yield to logic. You have just identified another inconsistency in the process, but the bottom line is that testing compensation for nondiscrimination does not cross plan years. At some point, you stop looking for logic and run with it. I do like the way you think; it was actually a thought provoking question

We spoke offline, and after reading I see your point of confusion. Do not confuse 'writing a SEP to an IRS model form' with setting up a new SEP. The IRS FAQ is merely stating that "IF" a qualified plan is in place, THEN the only way you can fund a SEP for that year would be to use a prototype SEP. The prototype SEP has language that accounts for the possibility of another plan. Good Luck!

This is entirely contingent upon the particular facts and circumstances of the case where you would take all "reasonable" steps necessary to place the individuals in the same position they would've been in had their contributions not have been missed. If the individuals were NHCEs, then you know the additional contributions wouldn't have adversely impacted the test, so there would be no need to re-run the test. Everything remains contingent upon the particular facts of your case. I wouldn't revise the 5500's. The only revision, if done, would be to log those amounts as a receivable at year end; and the 5500 may already be completed on a cash basis. Remember, contingencies is the key here Good Luck!

Nothing precludes them from adopting a separate plan for circumventing 411(d)(6) except price for the new plan. It's entirely a cost-benefit analysis. Good Luck.

That was the entire point. These aren't payroll amounts that were contributed to the SEP. They were amounts directly from the owner's bank account that were misclassified as SEP contributions; at least that's what the audit trail and reporting is made to state. Otherwise you have a non-uniform formula made to the SEP where the preferred method is additional allocations to the NHCEs. The question presented was whether the excess could be classified as an excess IRA contribution and be removed from the account? I would welcome your thoughts on that. I do agree with the points you've made

True. The key is understanding that the IRS is going to send you a bill with the worse case scenario and place the onus on you to prove that you owe only a fraction of that. Mbozek is basically having you to differentiate your original contributions from the investment gains for which the taxes and penalties will apply; and you would base your calculations from that. (MBozek, I think that's what you are getting at ) You may need historical records of your Forms 5498 to show your Roth IRA contributions for the years where Roth contributions were made. This will defend your contribution basis to the IRS and the remainder will be earnings. Good Luck!

It would still be "N/A" because the accrued benefit for the 412(e)(3) plan through the date of termination will be reflected and funded entirely through the annuity and insurance contracts. Keep in mind that in a 412(e) plan, the actuarial assumptions used for plan funding are within those annuity and insurance contract. One common way of looking at it is that the plan is never overfunded or underfunded. Any additional earnings beyond the contract guarantees are used to reduce the premium each year. There isn't a shortage because you are (or should be) using fixed annuity and insurance contracts. So, when you change to Traditional DB, the 412(e) portion remains frozen and funded while a trust is set up for the Traditional DB funding attributable for the ongoing accruals. Good Luck!

Earl, I see your question. My contention was to make it as if it were not the 'employer' making the contribution, but the employee. Hence, the employee would be responsible for reporting it as an IRA contribution and completing the Form 8606 (for nondeductible amounts) to the extent necessary. The employer will not take a deduction for that portion. There may be some asset tracking issues to resolve on the employer's books. Bird, I agree 1000%. This is why any approach would have to account for the entire flow (including the way things operate and and way they are reported) to ensure any action doesn't make a bad situation worse. Good Luck!

I would definitely say VCP. Keep in mind that every VCP filing does not include an identification of a "perfect fix". What is does, however, is clearly identifies the issue and the changes that are made to ensure the issue does not recur. As for how the current issue is being resolved, sometimes there isn't an action to be taken (or at least the action will be negotiated with the IRS agent when the case gets assigned). As far as how to prevent it from happening again, I would amend the plan to allow anyone to change their elections at any time. Some things within qualified plan operations are just too simple to screw up; and this is typically one of them I mean this with respect to putting a restriction in place just to let it go unenforced. Good Luck!

You're talking about "shifting" or "borrowing". This is typically done in 401(k) plans "after" the ADP test as been satisfied. Since there is no ADP test within a 403(b), I wouldn't imagine that to be an option. Keep in mind too that there may be different eligibility requirements for the deferrals and match within the 403(b). The deferrals are subject to universal eligibility while the match is not. Trying to 'shift' or 'borrow' may change your testing population. Without going in researching the exact language, I wouldn't count on this being a viable approach. Good Luck!

Keep in mind that W-2 and SEP contributions are not 'commingled' in a sense that changing a SEP contribution would necessitate a change in W-2. What you are effectively doing flowcharting how all employer and account records has the individual funded the IRA and the SEP for the desired amounts. This shouldn't impact W-2 as the resulting SEP contribution would merely be a lower percentage of W-2. It would impact the 5498 as their would be a separate form issue for the SEP contribution and the IRA contribution. The ultimate key is consistent of all records. Typically, the IRS's preferred method of correction is to make additional contributions. I am thinking that if desposits were made, but allocated in a different (and legal) manner, then the entire case would become a non-issue. When we get into removing contributions (which isn't entirely inconceivable), then you may deal with a different animal. There is always an option for the $250 VCP filing for SEPs to get the IRS to approve exactly what you want to do (removing the excess because of the confusion); but any other alternative should preserve a consistent audit trail. I know it sounds as if I am speaking in circles, but I am not sure removing the funds will be the best approach. It may be (since these are IRA accounts and the extended tax-filing deadline isn't here yet), but I would really research all implications on that approach before proceeding. Without actually doing detail research, I cannot provide a more definitive answer (but only thoughts and possible approaches), and I appologize for that. The IRS party line is a good approach! Good Luck!

I understand that, and agree. I was speaking to several state law brokerage issues that an attorney specializing in 403(b) spoke about at ASPPA. I hate that I could not provide more direct detail for lack of understanding, but she spoke of how the Treasury Regs couldn't impact state brokerage laws stating no one other than the account owner may direct that payout. This is where the 403(b) remains different, since that assets aren't in a trust and there is no trustee directing the payout. This was the jist of her statements. But, I agree with you 1000% on the regulation side and am merely speculating on what a holdup may be. I should've articulated that more clearly in my previous response.

As a rule, no. As a practical matter, there are some rules one various investment structures that may impede the plan's ability to distribute all assets within 12 months of termination. For instance, if everyone has a 403(b)(1) annuity, then you can simply assign the annuity to satisfy the distrbution requirement. However, if a participant is in a 403(b)(7) brokerage account and refuses to take a distribution, then it's not like a 401(k) trust where the trustee directs the distribution to the participant anyway. So, if all participants are located and on board, then there would be no reason not to terminate the 403(b). The rule changes allowing 403(b) termination to become a distributable event has creates some false expectations with some other rules. It should all get straightened out over the next 50 years Good Luck!

Technically, a SEP is a traditional IRA. Unlike a SIMPLE IRA (whose account is funded exclusively with SIMPLE IRA funds) and SEP contribution "MAY" be funded to a traditional IRA. The Form 5498 is the major tracking to differentiate the SEP contribution from the traditional IRA portion. What I would recommend is trying to classify $5,000 of it as a traditional IRA contribution (even if non-deductible). You can also classify another $5,000 as traditional IRA for 2011. While the account doesn't change, the 5498 reporting can work wonders; and it is consistent. The key is whether the custodian will reclassify them appropriately. Good Luck!

It appears as if they are looking for HCEs who may have taken distributions without reporting taxable income. It is common for the plans with incomplete recordkeeping systems to issue loans, and then fail to track them for repayment, and then fail to provide a loan offset 1099-R on final distribution (with no prior 1099R for the deemed distribution). Trust me, they are not concerned with protecting plan assets; they are looking for taxable events. Hope you have good records

You have to remember to differentiate the 403(b) elective deferrals from the 'employer funding'. The universal availability rules (e.g. normally work less than 20) apply to the elective deferrals only and no other source. So, it is possible (unlikely, but possible) for an employee to work 1000 hours per year and not meet eligibility for the elective deferral within a 403(b). You cannot use this rule for other contributions to a 403(b) merely because it is a 403(b) plan. So, if you were to try to provide an employer contribution using the same eligibility conditions, then you could disqualify the 403(b). Good Luck!

True, it's just that simple

The issue with "recurring and substantial" was to establish a fact pattern to support the "permanency requirement" of qualified plans (e.g. you aren't allowed to establish a plan to make a large tax deductible contribution in one year and then terminate the plan and roll it over). Well, that has always been my understanding; not to suggest yours isn't valid

Agreed. Keep in mind that you are not "amending the plan" to the extent of saying it actually operated differently during the point in time. You are merely "restating" without changes to actual plan provisions. It's more like re-writing the same plan provisions to the new document that excludes outdated and useless language (i.e. multiple use test provisions). With that in mind, you can actually restate all the way back to, let's say, 1/1/2008. At a minimum, I would at least ensure the date was within the Remedial Amendment Period. Good Luck!

Loaded question. You're asking because contracts have to be of the same series. Keep in mind that this is purely a 401(a)(4) issue, and not necessarily a 412(e)(3) qualification issue saying that in no instance may contracts not be of the same series. There are exceptions to the rule and work-arounds in cases where the insurance company no longer issues contracts; especially when there are new employees becoming eligible. This is only the beginning of the thought process; and EACH case is different. Good Luck!

I have always debated with myself on this issue with 0% MP Plans. On one hand, contributions must be recurring and substantial, but on the other hand, the MPP is subject to the funding requirements of Section 412 (no more and no less). If required funding is zero, then it is what it is. It would always be good to know why the decision was initially made for the plan to exist as opposed to rolling to an IRA. There are still many valid non-plan related reasons such as the product that is used to fund the plan may not be replacable with what is currently offered (i.e. fixed annuity with 6% guarantee ) At any rate, it may be a matter of continuing the offering but at a premium price since it creates a separate process (effortless at that) that is different from the primary offering.

Let's look at it like this. Chances are the deceased former participant had a former balance and took a distribution while a trailing contribution hit the plan (or something to create such a small balance). After a reasonable search (which you've apparently done) and given the relatively small balance, I would forfeit it to the plan. I would maintain elaborate documentation on why it was done (to show that it wasn't merely an arbitrary act to cut corners, but instead a practical solution to an administrative issue involving such a small amount). Obviously, the case would be different if the balance was $1 million but the simple fact is that it's not. Good Luck!

Let's look at it like this, in order for the employer to alienate the employee from his ERISA protected benefit, there would have to be an established exception (i.e. QDRO, IRS Tax Levy) to the rule. The issue goes to what appears to be an individual being "hired" under false pretenses (which is an employment law issue). When it comes to qualified plans, it is merely the fact that he was an employee (however bad), he's entitled to his benefit. Good Luck!